Liberal economics has led Australia to a ‘dead end’: Paul Keating

Former Labor prime minister Paul Keating has warned of the threats of extreme inequality, while arguing that liberal economics are “going nowhere”.

Speaking at a book launch in Queensland last night, Mr Keating said there’s a significant inequality gap in Australia that can only be filled with policy.

“There's got to be a shift, and the shift will have to come from government," Fairfax Media reported Mr Keating saying.

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"That sort of income distribution inequality becomes a curse, a cancer on a place. It's a horror story, unless there is a set of important changes."

He was launching the book Fair Share: Competing Claims and Australia’s Economic Future, co-authored by University of Queensland School of Political Science and International Studies researcher Professor Stephen Bell and former Department of the Prime Minister and Cabinet secretary Dr Michael Keating, AC.

Mr Keating argued that inequality had been exacerbated by the threat of artificial intelligence on jobs, and contended that the advent of 21st century technology simply saw wealth channelled back to a small group of the wealthy who did not funnel the cash back into the economy.

“These people are totally disconnected with the ordinary people of their country. What will happen is that the wealthy people will just pull away,” Mr Keating said, according to News Corp.

Looking back on his tenure as treasurer under the Bob Hawke government, Mr Keating said the welfare system protected the vulnerable while promoting wage growth.

However, he argued that liberal economics are no longer the best way to address 21st century challenges.

The original dividend imputation system was brought in by Mr Keating to avoid double taxation on dividends from company profits. This system allowed shareholders to apply imputation credits to their tax bill to decrease overall tax liability.

However, the John Howard government later brought in an additional concession allowing individuals and superannuation funds to accrue a cash refund if their imputation credits were larger than the tax they owed.

The proposal sparked widespread backlash from superannuation fund managers, the SMSF sector, shareholder associations and the current Treasurer, Scott Morrison, who said, "Labor's latest tax hike is a $59 billion slug on more than 1 million pensioners, retirees and low income earners who will get taxed twice by Labor on what they earn from investing their hard earned savings.”

Mr Shorten disagreed, arguing that the Howard-era changes to the system meant Australia is now the only OECD country with a fully refundable dividend imputation credit system.

He said this concession has grown at a rapid rate to now cost the budget more than $5 billion a year.